Real estate developer

This query is : Resolved

Rakesh Agarwal (Querist)
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26 August 2014 As per Accounting standard only the Construction,Land and Finance cost for land can be taken to WIP. If the company has only one project to be completed in 5 years, Selling expenses starts in 1st Year of project.

My Question is can the Selling expenses of the project (broker)be debited to P&L without booking the revenue as per % completion Method?

Is matching revenue with expenses not applicable?

Does Balance sheet has to show a loss for 3 Years and then start setting off losses with revenue?

CA Kishore Tallam

CA Kishore Tallam (Expert)
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27 August 2014 Yes. Costs which are directly / indirectly associated with construction of the project only to be taken to WIP. Selling expense are not associated with construction but associated with sale of the constructed structure. Hence, they cannot be taken to WIP, but to be charged off.
Coming to matching revenue with expenses, i will quote an example. Assume that you have spent extensively for advertisement of your products. However, no sale has happened even on advertisement. This does not mean that you should carry this advertisement cost as asset. Hence, selling expenses needs to be charged off.